How Will The Merge Solve Ethereum’s Scalability Issues?
The Ethereum platform was introduced in 2015 by Vitalik Buterin and four other founders. While Bitcoin changed how we look at money by decentralizing payments, Ethereum was among the first blockchains to consider the full potential of blockchain technology beyond just enabling the secure virtual payment method.
Ethereum is the second-largest blockchain platform in the world. Anyone can use this platform to create decentralized applications and platforms based on smart contracts. Smart contracts are self-executing contracts that execute a transaction automatically when a predetermined set of conditions are met.
Ethereum, like any other blockchain, is decentralized, immutable, and secure. It is designed to be programmable and scalable. Developers need to pay gas fees in Ether for using Ethereum’s capabilities. Transaction fees on the network are also paid in Ether.
Ethereum’s growing popularity is also due to the rise of NFTs (Non-Fungible Tokens), Defi (Decentralized Finance), DAOs (Decentralized Autonomous Organizations), Web3, and blockchain gaming platforms.
However, its popularity comes at a great cost. Ethereum has been facing scalability and speed issues causing the network gas fees to skyrocket at times.
Ethereum’s Scalability Issues
Experts often cite that blockchains were never designed to handle transactions on a mass scale. And truly, Bitcoin’s Proof-of-Work consensus works in a tedious cycle of asking every node on the network to validate a transaction before it becomes part of a block. Ethereum currently uses Proof-of-Work consensus, which is not just time-consuming. It requires special ASIC mining equipment and large amounts of energy for miners to validate the transactions. This makes the process slow, unsustainable and expensive.
Ethereum, like any other blockchain, operates on a limited capacity to handle the large amounts it currently receives, owing to the thousands of applications living on its network. Currently, Ethereum can process 15 transactions per second, which is way less than the required TPS to handle applications that are fast-entering a mass scale.
With more decentralized apps across the platform, the number of transactions increases, increasing the gas fees. Its gas fees have increased to double-digit figures during peak hours, making it unaffordable for most users. Developers also seem to be frustrated with the costs involved and speed issues.
In cases where the network is congested, transactions start backing up in the memory pool of the blockchain, where all the pending transactions are stored. This creates a situation where network gas costs rise excessively as the network becomes slow and congested, worsening the situation as miners process transactions with a higher gas price first.
What Is Merge? How Would It Help?
The Merge is the most awaited upgrade to the Ethereum website. This update will shift the Ethereum blockchain from Proof of Work (PoW) consensus to Beacon Chain’s Proof-of-Stake (PoS) consensus mechanism, which is faster, energy-efficient, and more secure. The Beacon Chain is currently running parallel to the Ethereum Mainnet. After the Merge, the Beacon Chain will integrate with the Mainnet.
The Proof of Stake (PoS) does not require energy-consuming equipment as the consensus selects random nodes to validate the transactions. Proof of stake will set new sustainability standards as, post the upgrade, Ethereum’s energy consumption will reduce by 99%.
The network has been getting ready for the Merge for a long time now. There have been several prior upgrades, like the recent London hard fork in August 2021. The Merge itself is not a standalone upgrade but a series of upgrades that will make possible Ethereum’s shift from PoW to PoS.
Validators would be required to stake ETH to become eligible and get rewards in ETH in proportion to their stake for validating those transactions. The Merge will pave the way for sharding in 2023. If we talk about sharding, it will later help to scale Ethereum. With the sharding upgrade, Ethereum will have the capability to handle thousands of transactions per second by splitting the blockchain into separate chains (shards).
Sharding will make it convenient for validators to enter the blockchain and store and run data. With the new upgrade, running Ethereum nodes directly from your laptops or mobile devices might soon be possible.
Besides these, Ethereum deploys several L1 and L2 scaling solutions, which help to scale applications by handling transactions beyond the realm of Ethereum Mainnet. Other scaling solutions include L2 rollups — off-chain transaction aggregators, state channels, sidechains, plasma chains, etc., as a scaling mechanism for the near term and mid-term future and to assist post-merge cleanup. Post-Merge Ethereum capabilities are expected even to bypass VIsa’s processing capability.
The Risks That Come With Merge
Merge will change a platform that manages hundreds of billions of dollars. The upgrade is highly anticipated, but it comes with numerous risks for the participants and blockchains involved with Ethereum. If the Merge fails, it will severely affect the related platforms, applications, and scaling protocols that have their bets tied to Ethereum.
Ethereum is the base layer for thousands of decentralized applications (dApps) on the internet. The failure might affect several of them, including altcoins like Basic Attention Token (BAT), Layer-2s like Polygon (Matic), and metaverse tokens like Sandbox. Other popular technologies like NFTs and DAOs might also face the consequences.
Ethereum currently has four unique client implementations of the Ethereum node for PoS. If there’s a possibility of the Merge not being able to meet expectations, Proof of Stake node operators can switch to different clients if one experiences issues.
There are chances that the shift might cause the network to be destabilized, as miners might rush to sell their equipment and quit the network instead of waiting to collect the last of the mining rewards. The drop in mining power might become a concern as the network’s security may be undermined. There are also chances of Ethereum forking into two separate chains, one that still supports PoW and the other PoS. However, there are chances that Ethereum might continue to run both PoW and PoS consensus simultaneously.
The Merge is surely a significant event in Ethereum’s and blockchain’s history. Developers of the network say that all software comes in-built with a recouping mechanism in an emergency. The Merge has been waiting for five years and might be further postponed if any anomaly rises.
Blockchain’s possibilities can be amassed to suit mass adoption sustainably if the Merge happens successfully on the largest growing network in the crypto world. Until that happens, we cannot but hope for the best.